The Role of Intergovernmental Finance in Achving Diversity and Cohesion: The Case of Spain

Abstract

The democratic Constitution of 1978 established a decentralised state in Spain. Since that year, the Autonomous Communities (the intermediate level of government) have strongly increased their role and currently represent around 25% - 30% of total public expenditure. Therefore, financing autonomous government has become a crucial issue with important financial and political consequences. The present system is based mostly on grants from central government, while tax revenues and fiscal accountability are weak. The financing system can play an important, albeit complementary, role in ensuring cohesion within a decentralised state. On the one hand, it can achieve a certain level of equalisation in providing public services all over the territory. On the other hand, it can allow all regions to obtain an appropriate level of self-government. However, it is important to stress that territorial cohesion requires as a precondition, a political consensus and the acceptance of a common project among the different regions. Financial problems can certainly become political problems, but political problems can rarely be solved through financial measures alone. Therefore, we should not demand of intergovernmental finances what they cannot do.